OFT imposes fines in two cartel cases relating to the construction industry

The Office of Fair Trading (OFT) has recently imposed fines in two separate cases relating to the UK construction industry.One cartel concerned bid-rigging by 103 construction companies, including the practice of “cover pricing”.The other cartel involved recruitment agencies in the construction sector.Both of the OFT’s decisions in these cases have now been appealed to the Competition Appeal Tribunal CAT.

Construction cartel

On 22 September 2009, the OFT announced that it had imposed fines of £129.5 million on 103 companies in the construction sector in England for operating a bid-rigging cartel. The main anti-competitive practice which the firms concerned were found to have carried out, was “cover pricing”.This practice is undertaken where a bidder submits a bid but does not wish to win the tender; the bidder obtains an artificially high “cover price” from a competitor, which is then submitted as a genuine bid. In addition, the OFT found cases of compensation payments being made by successful bidders to unsuccessful bidders.

86 firms received reductions in fines.The OFT made some of those reductions under its leniency regime and others under a new “fast track” procedure, where companies which had not applied for leniency could still receive a reduction in fines (of up to 25%), in return for admitting their involvement and cooperating with the OFT’s investigation.

The cartel is reported to have affected building projects in England, including those concerning schools, universities and hospitals. Unusually, the OFT has issued guidance to organisations which will procure construction services in the future, urging them not to exclude the firms named in the OFT’s decision from further tenders.

Three parties have appealed against the OFT’s decision in relation to the recruitment agency cartel.

Recruitment agency cartel

On 30 September 2009, the OFT announced that it had found eight companies guilty of involvement in a cartel in the construction recruitment agency sector and had imposed fines totalling £39.27 million. The recruitment agencies in this case, which supplied professional, managerial, trade and labour skills to the UK construction industry, were found to have engaged in both price fixing and a collective boycott.

Two of the undertakings involved benefited from total immunity, and all except one benefited from some form of leniency reduction. According to the OFT, the total fines before leniency amounted to £173 million, an amount significantly greater than the eventual fines.

A large number of parties have also appealed against the OFT’s decision in the construction cartel case.

Comment

These decisions indicate that the OFT will continue to use its enforcement powers to punish cartels uncovered in the UK and to impose substantial fines, despite the current economic climate. However, the OFT has recognised the financial difficulties facing the firms involved in the construction cartel and has offered them the option of paying the fines in instalments over three years, in contrast to the usual rule which requires penalties to be paid in full within two months of the OFT’s decision.

The decisions also demonstrate the significant reduction in penalties which the OFT may be prepared to grant, either under its leniency policy or a “fast track” procedure introduced in a particular case.